As we all live longer and hopefully lead more active lives in our retirement, it’s now more important than ever to think about where your income will come from when you decide to retire. At the heart of any retirement planning will be your pension – this will include your state pension, any occupational pensions and private pension schemes. Sam Johnston, Financial Consultant from Penney Financial Partners gives four top tips on planning for your retirement.

Historically many people would have had an employee pension scheme that would have paid a final salary for retirement, but the changing pension landscape and the withdrawal of many final pension schemes has put the responsibility of ensuring we have enough provision to meet our retirement goals firmly in the hand of the individual.

Today very few people will remain with the same employer for their whole working lives – when people reach middle age they may have accrued a collection of different pension schemes, each one individually worth a huge amount but collectively they could be quite powerful.

This means that the individual has the freedom and the opportunity to explore how best to help ensure they properly provided for in their retirement and the key to success is all about being proactive.

1. Being clear about what retirement looks like for you

The most important thing that you need to be clear about before establishing a plan is what you want your retirement to look like. Not only will this give you the best opportunity of living out a retirement that puts a smile on your face but it also gives your advisors a clear goal to work towards.

Fundamentally there will be a set of numbers attached to your desired lifestyle and this will become your target.

The reality is that some people actually over-estimate what they think they will need for retirement. Many people will have lived on a given salary and from this they will have paid their tax and their overheads but in retirement, many of those overheads will have gone – there will be no more costs associated with work for instance such as commuting and many people will also aspire to have paid off their mortgage before they retire, often the biggest expense during our working lives.

The important thing is that you get really clear about what expenses you are likely to have and this covers two things – those ongoing direct debits and payments that will continue into your retirement like household bills and then the potential costs that are associated with your lifestyle – those things that you are looking forward to doing when you no longer have to go to work.

2. Getting your house in order

It is never too late to start planning for your retirement but there is absolutely no doubt that the earlier you start, the better. By putting in a concerted effort today, the likelihood is that any actions that you need to take will be less drastic when it comes to helping to ensure you have the financial freedom in retirement to enjoy the lifestyle you desire.

An important part of this process is to understand your position today. Many people will have accrued a number of occupational pensions during their working life – track these down and then you will be able to take control. This will mean being pro-active and very often it will mean updating the administration on these schemes, but it is definitely worth the effort.

And so why is this important? Well firstly it is important to understand what your potential income would be from your existing pension schemes so that this can be factored into your retirement plan and how these will contribute towards you achieving your goals.

Secondly, by reviewing your existing pension schemes, we are able to assess whether these schemes are right for you in terms of do they help you meet your objectives in terms of risk, income and when you want to retire.

While there will be similarities, no two pension schemes are the same with different definitions of risk and exposure to different funds and stocks. Only by properly understanding the fundamentals of each scheme can we then decide where the best value lies for you from the pensions you have accrued in terms of leaving them to continue building organically towards your retirement or potentially looking at amalgamating them to create a new portfolio that better meets your needs.

3. Making the most of your occupational pension

The occupational pension scheme has certainly shifted over the years, but they continue to provide a strong cornerstone of any retirement plan and ultimately they are providing you with free money from your employer towards your retirement. The question you should be asking now is how much of that free money can you get?
In a standard auto enrolment scheme, the employer will put in around 5 per cent of an employee’s salary and the employee will contribute 3 per cent of their salary. Very often if the employee decides to increase their contribution, the employer will also increase their contribution. It is an easy pay rise so find out today what your employer will do if you decide to increase your contribution.

It is worth remembering that while increasing your pension contribution may have a minor impact on the amount that you will see in your net pay, over the long term you are likely to pay less tax on that income, particularly if you are a higher-rate taxpayer.

This is because if you are paying into a pension scheme then you are saving tax at 40 per cent. However, as long as you are drawing less than £50k annually when you start to take your pension, you will only be paying tax on that income at the basic rate.

 4. Speak to an advisor and take control of saving for your retirement

Once you have taken all of the steps to really get clear about what you want your retirement to look like and then been pro-active to understand what your position is today, they can then develop a plan that will help you achieve your goals.

Ultimately the goal is maximizing what you can put into a pension – it is hugely tax efficient and should be the first consideration when planning for retirement. However, it is not the only savings plan to consider when planning for later life – ISAs for instance are also fundamental to many client’s retirement plans given the tax relief they enjoy.  There are also various other opportunities to diversify across different assets to help you achieve your financial goals.

There is no one size fits all when it comes to retirement – as I said at the beginning of this video, the onus is very much on the individual with the increasingly freedom in pensions but it can also be a big undertaking – that’s why by working with an adviser there is a much better chance of developing a plan that aligns with your objectives and most importantly of all, is achievable.

A trusted advisor can help you navigate this sometimes tricky road and give you reassurance as well as peace of mind that the actions you are taking and the decisions you are making are the right ones.

I hope you have enjoyed this Knowledge Briefing and it has provided some food for thought as regards your own retirement plans.

Here at Integro Accounting, Penney Financial Partners are our recommended partner for financial planning. Here’s more information on why you should choose Penney Financial Partners and how they can help you.